This post was originally shared in my DT Email Newsletter here.
I got a text from an old friend, Raymond.
I met him many years ago at a bond meeting luncheon. We met again recently, over coffee at my office coffee shop downstairs.
Raymond has built up his retirement money over the years, about $4 million. His private bank manages his money. And he has to pay his fund manager roughly $48,000 a year. Just in fees.
His US and European stocks have actually done well. But the funds recommended by his bank? Those did badly. He showed me the numbers.
He said: “Last year I had to pay over $25,000 in fees.. And that’s just for the funds I bought.” That’s not a small amount. Especially when the returns don’t match the cost.
He said: “I believe I can do it better myself.”
He’s right.
The problem with bankers
You see, here’s what most bankers won’t tell you – the financial industry runs something called “asset gathering”. The more assets they manage, the higher the fees bankers collect. Whether you make money or not.
When I started writing dividendtitan.com, I heard these same stories a lot. I told Raymond we’re smart enough to manage our own money. The real problem is a lack of confidence. And this can be frustrating. Because most investors were never given the right framework to invest.
Without a clear blueprint of what stocks to buy, when the right price to buy and how much to buy… Investors will always end up “floating around” – trading here and there, not knowing what to do next.
I said: “Raymond, you don’t need to pay those huge fees to your banker. You can do this yourself.”
Here’s what I told him next to save up his fees…
There are four things you can do to greatly increase your chance of succeeding as an investor.
I took out my phone, opened up my brokerage account
This is the same plan I walk through with my Diligence Wealth Club members.
1. Spread your money across different countries.
Each market has its own strength. Each market has its own weakness.
The US is a huge market for growth. The big problem is the estate tax. If something happens to you, the US government can take a huge chunk of your money – as much as 40%.
China and Hong Kong are different. Markets there often swing on policy decisions. One sudden policy change can shake an entire sector overnight.
In Singapore, it’s different again. Your investment choices are narrower. If you have a large portfolio, you can’t just rely on Singapore banks, a few REITs and a couple of government-linked companies. It’s hard to grow your wealth this way.
No single market is perfect. That’s why I never put all my eggs into one country. I spread out instead.
2. Start with companies that pay dividends (even if it’s a 2% or 3% yield) and have a long history of growing dividends.
Btw, this includes money spent on buying back shares.
This helps narrow your possible choices substantially, giving you a much simpler stock universe to manage. It will also automatically prevent you from buying stocks that are considered “speculative”.
When management decides to pay dividends, they must know the company has to do well first before it can continue to pay dividends year after year. That’s a reflection of sound business fundamentals.
I know, earning just 2% yield a year isn’t much. But trust me, this yield will continue to grow. Even if the stock price drops, you’ll probably still show a gain on your stock, thanks to the dividends.
3. Of these companies that pay dividends, only buy companies that you can easily understand, and that you’ve judged to have a solid competitive advantage.
I like to look at businesses that sell “habit-forming” products and services. This keeps customers coming back and gives companies strong pricing power.
4. Only buy stocks when they are attractively priced.
This means when they have a substantial margin of safety. This means I only wait to buy until the company’s shares fall below My Right Price Gauge.
Even better, when you do these yourself, you save A LOT of fees for yourself.
This way, you increase your chances to succeed as a retail investor.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
